Can someone more clearly explain this concept to me? My logic is that, for a entrepreneur who just started a company that is pre-IPO and therefore not even public, there should be zero systematic (market) risk, and it should be all unsystematic (specific) risk.
How then, is he considered to be exposed to "total risk", or both??
Don't the stages look something like this?
Entrepreneur: unystematic
Executive: both, but more unsystematic
Investor : both, but heavily tilted toward systematic as largely diversified作者: Analti_Calte 时间: 2011-7-11 19:47
There is always systematic risk with investments - you can't diversify it away - it's the risk that has nothing to do with the firm your investing in.作者: cityboy 时间: 2011-7-11 19:47
You have the best product in the world......... but the economy is in a deep recession and everyone is bankrupt, are you going to be able to sell it?
Systematic risk 作者: Valores 时间: 2011-7-11 19:47
Correct, the amount of systematic risk is very small compared to a diversified investor, but it is still there and cannot be completely eliminated作者: bodhisattva 时间: 2011-7-11 19:47
Look at the graph in the book. It makes sense.作者: wake2000 时间: 2011-7-11 19:47
I see your reasoning but I wouldn't worry too much about the magnitude of the risk because the way I understand it an Entrepneur is pre-IPO so his Residual risk could possibly be larger than the Executive or Investor. Cause of a lack of an exchange ect. That could make his systmatic risk higher or smaller than the Executive or Investor
I think the aim is to know what risks exists and not how big they are, u agree?.
